'One More Shoe To Drop': Investor Reveals Shocking Targets For Stocks, Gold | Jim Welsh
Summary
- Expects further escalation in the Middle East conflict ("one more shoe to drop"), with the U.S. likely to "finish the job" to maintain credibility and secure key objectives like neutralizing Iran's uranium and reopening the Strait of Hormuz.
- Forecasts another decline in the S&P 500 to the ~6,000-6,200 level as a result, after which a more sustainable rally could begin. Current market action is characterized by a downtrend (lower highs and lower lows).
- Views oil (WTI) as a critical risk; a spike is possible if Houthis successfully target Saudi Arabia's critical East-West Pipeline, which now ships 7 million barrels/day.
- Near-term bearish on gold, expecting a potential decline below $4,100 to complete a larger correction, despite a long-term bullish view. Strength in the US dollar is cited as a contributing pressure.
- Constructive on the US dollar (DXY), with a technical pattern suggesting a rally to at least 103-104 and potentially toward 107.60, contrary to narratives about dollar demise.
- Believes the Fed is unlikely to raise rates in 2024, understanding that high oil prices cause demand destruction. They will instead use tough jawboning to manage inflation expectations.
- Sees a bifurcated U.S. economy: high oil prices disproportionately hurt lower-income groups, while the top 10% remain resilient, supported by fiscal stimulus (e.g., infrastructure bill) and continued AI spending.
- Advises a defensive stance: raising cash, avoiding financials due to exposure to private credit (though not a systemic 2008-level risk), and seeing potential in beaten-down tech stocks after a further market decline.
- Labor market is viewed as stable at an equilibrium requiring only ~10k jobs/month, leading to volatile monthly prints. This stability allows the Fed to remain patient.
Trade Ideas
Stated the S&P is in a downtrend (lower highs, lower lows) and expects "one more shoe to drop" from Middle East escalation, leading to a selloff that could take the index down closer to 6,000-6,200. The anticipated geopolitical escalation will create a final wave of selling pressure before the market is positioned for a more sustainable rally. Advises a defensive posture and raising cash, implying a short or avoid stance until this lower target is reached. A rapid de-escalation in the Middle East could trigger the anticipated rally prematurely.
Identified WTI above $80 as a problem for markets. Highlights a major skewed risk: if Houthis damage Saudi Arabia's East-West Pipeline (capacity 7M bbl/day), oil prices will spike. The ongoing conflict creates direct, tangible supply risks. Higher oil acts as a tax on consumers and a key variable for Fed policy and market direction. Oil is a critical pressure point and potential source of major volatility, requiring close monitoring for both market and economic implications. The pipeline is not attacked, and the Strait of Hormuz reopens smoothly, leading to a rapid price decline.
Believes gold is in a multi-month correction and will see more price erosion, with a chance to dip below $4,100. Notes gold has not performed well as a safe haven recently. A completed corrective wave pattern (A-B-C) from the 2025 high is underway. A stronger US dollar and potential peace in the Middle East would be near-term negatives for gold. Expects a downward move to complete the correction, presenting a better buying opportunity at lower levels. A severe, unexpected escalation in the Middle East that directly threatens oil infrastructure could trigger a flight to safety, boosting gold.
Has been constructive on the dollar since its January low. Technical analysis shows a completed 5-wave advance, implying another push higher to above 100.50, with potential to reach ~107.60. The pattern suggests the prior downtrend has reversed. Contrarian sentiment (widespread stories about the dollar's demise) provides fuel for a rally. The dollar is likely to break out to the upside, which would pressure dollar-sensitive assets like gold and emerging markets. A swift resolution to the Middle East conflict and a coordinated shift away from dollar-denominated oil trades could undermine the thesis.
Explicitly stated he would "avoid financials" because private credit is going to become a problem, and banks have some exposure to it. While private credit issues are not expected to be systemic like 2008 (due to lower bank leverage), they could still create problems for more exposed banks. The sector carries unattractive risk due to its link to potential stress in private credit markets. If private credit markets stabilize without significant losses, the avoidance call may be too cautious.
